America, from its inception, was a speculation,” begins the historian Aaron M. Sakolski’s 1932 classic, The Great American Land Bubble. George Washington himself was a land speculator, Sakolski notes, and by Washington’s time it was widely perceived that America would eventually be populated much more densely by vast numbers of immigrants, leading many investors to dream of rapidly rising land prices. Waves of speculative mania swept towns, cities, and regions from the 18th century onward, even along the vast and empty frontier. Up, up went the prices. And then, inevitably, down.

Sakolski was seeking to make sense of the biggest national housing bust in American history—at least so far. It began in 1926 and spread to the stock market in 1929, triggering a severe banking crisis that in turn affected almost all types of businesses. Home prices fell a total of 30 percent from 1925 to 1933, and the unemployment rate reached 25 percent at the depth of the Great Depression.

Many culprits have been fingered for the housing crisis we’re in today: unscrupulous mortgage lenders, dishonest borrowers, underregulated financial institutions. And all of them played a role. But too little attention has been paid to the most fundamental cause, the same one that was at the root of the many booms and busts that Sakolski chronicled years ago: the contagious optimism, seemingly impervious to facts, that often takes hold when prices are rising. Bubbles are primarily social phenomena; until we understand and address the psychology that fuels them, they’re going to keep forming. And unless we apply that understanding to the bubble we’re trying to recover from, we risk calamity.

Bubbles are a lot like epidemics. Every disease has a transmission rate (the rate at which it spreads from person to person) and a removal rate (the rate at which those individuals recover from or succumb to the illness and so are no longer contagious). If the transmission rate exceeds the removal rate by a certain amount, an epidemic begins.

From the archives:

Dow 36,000 (September 1999)
Has the long-running bull market been a contemporary version of tulipmania? In explaining their new theory of stock valuation, the authors argue that in fact stock prices are much too low and are destined to rise dramatically in the coming years. By James K. Glassman and Kevin A. Hassett

Speculative bubbles are fueled by the social contagion of boom thinking, encouraged by rising prices. Sooner or later, some factor boosts the transmission rate high enough above the removal rate for an optimistic view of the market to become widespread. Arguments that this boom is unlike past bubbles—I call them “new era” stories—become more prominent and seemingly credible. In the recent housing boom, such optimism was much in evidence. A survey that Karl Case and I conducted in 2005, for instance, found that on average, San Francisco home buyers expected housing prices to increase by 14 percent a year over the next 10 years. About a quarter of the respondents reported truly extravagant expectations—occasionally more than 50 percent a year.

In this sort of environment, skeptics have a hard time of it. No one has perfect information, and people—quite rationally—infer a great deal from the actions of others. As a bubble expands, some skeptics begin to disregard their own judgment because they feel that everyone else simply couldn’t be wrong. Contrarian voices become softer, which only makes it harder for the remaining skeptics to justify their views. Over time, the quality of information that can be gleaned from the behavior of others becomes worse and worse.

Few people seem immune to boom thinking. The recent bubble grew so large partly because the very people responsible for the financial system’s oversight came to share the general public’s rosy expectations. They may not have believed as fervently in the boom, but they still accepted the idea that it would not end badly. Builders kept building, and ratings agencies did not temper their sunny assessments of mortgage securities until after the crisis had begun. In October 2006, Frank Nothaft, the chief economist at Freddie Mac, a major securitizer of home mortgages, told me that Freddie Mac had financially modeled the impact of a price decline of up to 13.4 percent. When I asked him about the possibility of a bigger drop, he replied that such a drop had never happened (at least not since the Great Depression)—and he seemed unable to imagine that it could.

Since the 2006 peak, housing prices, adjusted for inflation, have fallen nearly 15 percent. Where they’ll go from here is uncertain; we are in uncharted territory. Between 1997 and 2006, real home prices in the United States rose 85 percent; this run-up was historically unprecedented. There was no rational basis for it: fundamental indicators such as the ratio of home prices to building costs, or to rents, or to personal income, also soared, suggesting unsustainable price levels. (The idea that the country is running out of residential space is no more true now than it was during the manias of the 18th and 19th centuries.)

Already, the crisis has infected other sectors besides housing. Credit-card and automobile-loan defaults have been increasing. The credit ratings of municipal- bond insurers are being downgraded, and the market for corporate debt is troubled. If housing prices keep falling, the impact of the crisis on the broader economy will be amplified further. Both Sweden and Mexico experienced severe recessions after profligate mortgage-lending booms in the early 1990s. Japan suffered a “lost decade” after its housing bubble burst in 1991. We may wish to think of the current economic setback as a one-act play, soon to end, but it could be only the first act of a long and complex tragedy.

How can we inoculate ourselves against a recurrence of this whole awful cycle? Government officials today are rightly pushing regulatory reform to prevent lending abuses and reckless behavior among financial institutions. But that doesn’t address our psychological vulnerability to bubble thinking, which seems greater than it’s ever been. During the stock-market boom of the 1990s, the national psyche, long infused with a Protestant work ethic, seemed to undergo a transformation, and the idea arose that we could expect to make a lot of money by investing. At the same time, the proportion of Americans owning stocks and homes was increasing. We should be happy that more people are investors and homeowners today, but those latest to the game are often the least sophisticated players, most susceptible to irrational optimism—one reason why the most-recent stock and housing bubbles grew so large.

Irrational exuberance is bound to pop up from time to time; we can’t stop it altogether. But we probably can limit it, preventing some bubbles and keeping others smaller. Boom thinking is carried along by bad arguments and bad information. The key to keeping the transmission rate low and the removal rate high, if you will, is better dissemination of reliable information—something the government should focus on over the coming years.

Many households have access to very little financial insight. In most cases, the only financial professionals they come into contact with are trying to sell them something, whether it’s a mortgage or a stock. Independent financial advisers, who provide more-comprehensive advice, have typically been available only to the relatively wealthy. The questions most people need answered are elementary: How risky is this investment? Have prices ever gone up this fast for this long before? Can I afford this loan if interest rates rise? But they’re not getting straight answers to these questions.

Financial advice is in some respects like medical advice: we need both on an ongoing basis, and failure to obtain either can impose costs on society when our health—physical or financial—suffers. There’s a strong case to be made that the government should subsidize comprehensive financial advice for low- and middle-income Americans to help prevent bubbly thinking and financial overextension. One way to do this would be through co-pay arrangements like those in place for Medicare or for private health insurance. Accredited advisers, charging a flat fee, would be partially reimbursed by the government; the moderate costs to consumers would create a much broader market for their services.

We also need to get better—and more—information to more-sophisticated investors and financial professionals. In real estate, one important way of doing that is by further developing the financial market rather than focusing only on regulating it or reining it in. For instance, real-estate futures markets, which have existed since 2006 but are still in their infancy, have the potential to tame future housing bubbles. Without them, there is no way for skeptical investors who think they see a rising bubble to express that opinion in the market, except by selling their own homes. If futures markets grow, then any skeptic anywhere in the world could profit from a bubble in, say, Las Vegas, by short-selling real estate there. Substantial short-selling would reduce bubbles, and provide information to home builders, ratings agencies, and others. In turn, builders, for instance, might not overbuild if they see that most of the money in the futures markets is being bet on price declines.

Subsidized financial advice and the encouragement of real-estate futures markets are just two examples of the sorts of actions that could limit future bubbles. The larger point is that increasing the amount, accessibility, and reliability of information about investments should be a high priority for policy makers. Epidemiology suggests that even very small changes to the transmission rate of a disease can make the difference between an epidemic and a low-incidence disease. If better information inoculated even relatively few people against boom thinking, that could prevent many bubbles from rising.

There’s another, more urgent reason to focus on the idea of social contagion today. Like booms, many busts are magnified by group thinking. And once busts become severe enough, they prompt changes in the national mood that ramify well beyond economic affairs. Benjamin M. Friedman, in his 2005 book, The Moral Consequences of Economic Growth, cites abundant historical evidence that when economic prospects look bleak—especially for long periods of time—intolerance, racism, and other reactionary impulses flourish. As more people experience hardship, trust between them tends to diminish, and the social fabric itself seems to fray.

If home prices keep dropping, more bailouts of banks and broker-dealers likely will be necessary to prevent the paralysis of the financial system and a severe loss of confidence in our economy and economic institutions. And if we aim to stop foreclosures, with all their ugly consequences, from spreading further, many, many homeowners are going to need loan refinancing—which will need to be provided or backed by the government. Bailouts of investors and prospective bailouts of unwise or unlucky home buyers have stirred a lot of controversy, and indeed, financial bailouts are, for many reasons, unsavory. But given the severity of the current financial seize-up, they are needed—not to prop up Wall Street profits or housing prices, but to prevent a fundamental loss of economic confidence and to maintain a sense of social justice for those of modest means. Losses of confidence and trust can mount with surprising speed, and beyond a certain point they become very difficult to recover from.

We recently lived through two epidemics of excessive financial optimism. I believe that we are close to a third epidemic, only this one would spread irrational pessimism and mistrust—not exuberance. If that happens, our economic problems will become much worse than they need to be, and our social problems will multiply. Only if we heed the lessons of the boom can we keep the bust from causing lasting damage.

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Five days after Hurricane Maria made landfall in Puerto Rico, its devastating impact is becoming clearer.

Five days after Hurricane Maria made landfall in Puerto Rico, its devastating impact is becoming clearer. Most of the U.S. territory currently has no electricity or running water, fewer than 250 of the island’s 1,600 cellphone towers are operational, and damaged ports, roads, and airports are slowing the arrival and transport of aid. Communication has been severely limited and some remote towns are only now being contacted. Jenniffer Gonzalez, the Resident Commissioner of Puerto Rico, told the Associated Press that Hurricane Maria has set the island back decades.

A small group of programmers wants to change how we code—before catastrophe strikes.

There were six hours during the night of April 10, 2014, when the entire population of Washington State had no 911 service. People who called for help got a busy signal. One Seattle woman dialed 911 at least 37 times while a stranger was trying to break into her house. When he finally crawled into her living room through a window, she picked up a kitchen knife. The man fled.

The 911 outage, at the time the largest ever reported, was traced to software running on a server in Englewood, Colorado. Operated by a systems provider named Intrado, the server kept a running counter of how many calls it had routed to 911 dispatchers around the country. Intrado programmers had set a threshold for how high the counter could go. They picked a number in the millions.

The greatest threats to free speech in America come from the state, not from activists on college campuses.

The American left is waging war on free speech. That’s the consensus from center-left to far right; even Nazis and white supremacists seek to wave the First Amendment like a bloody shirt. But the greatest contemporary threat to free speech comes not from antifa radicals or campus leftists, but from a president prepared to use the power and authority of government to chill or suppress controversial speech, and the political movement that put him in office, and now applauds and extends his efforts.

The most frequently cited examples of the left-wing war on free speech are the protests against right-wing speakers that occur on elite college campuses, some of which have turned violent.New York’s Jonathan Chait has described the protests as a “war on the liberal mind” and the “manifestation of a serious ideological challenge to liberalism—less serious than the threat from the right, but equally necessary to defeat.” Most right-wing critiques fail to make such ideological distinctions, and are far more apocalyptic—some have unironically proposed state laws that define how universities are and are not allowed to govern themselves in the name of defending free speech.

A growing body of research debunks the idea that school quality is the main determinant of economic mobility.

One of the most commonly taught stories American schoolchildren learn is that of Ragged Dick, Horatio Alger’s 19th-century tale of a poor, ambitious teenaged boy in New York City who works hard and eventually secures himself a respectable, middle-class life. This “rags to riches” tale embodies one of America’s most sacred narratives: that no matter who you are, what your parents do, or where you grow up, with enough education and hard work, you too can rise the economic ladder.

A body of research has since emerged to challenge this national story, casting the United States not as a meritocracy but as a country where castes are reinforced by factors like the race of one’s childhood neighbors and how unequally income is distributed throughout society. One such study was published in 2014, by a team of economists led by Stanford’s Raj Chetty. After analyzing federal income tax records for millions of Americans, and studying, for the first time, the direct relationship between a child’s earnings and that of their parents, they determined that the chances of a child growing up at the bottom of the national income distribution to ever one day reach the top actually varies greatly by geography. For example, they found that a poor child raised in San Jose, or Salt Lake City, has a much greater chance of reaching the top than a poor child raised in Baltimore, or Charlotte. They couldn’t say exactly why, but they concluded that five correlated factors—segregation, family structure, income inequality, local school quality, and social capital—were likely to make a difference. Their conclusion: America is land of opportunity for some. For others, much less so.

One hundred years ago, a retail giant that shipped millions of products by mail moved swiftly into the brick-and-mortar business, changing it forever. Is that happening again?

Amazon comes to conquer brick-and-mortar retail, not to bury it. In the last two years, the company has opened 11 physical bookstores. This summer, it bought Whole Foods and its 400 grocery locations. And last week, the company announced a partnership with Kohl’s to allow returns at the physical retailer’s stores.

Why is Amazon looking more and more like an old-fashioned retailer? The company’s do-it-all corporate strategy adheres to a familiar playbook—that of Sears, Roebuck & Company. Sears might seem like a zombie today, but it’s easy to forget how transformative the company was exactly 100 years ago, when it, too, was capitalizing on a mail-to-consumer business to establish a physical retail presence.

The foundation of Donald Trump’s presidency is the negation of Barack Obama’s legacy.

It is insufficient to statethe obvious of Donald Trump: that he is a white man who would not be president were it not for this fact. With one immediate exception, Trump’s predecessors made their way to high office through the passive power of whiteness—that bloody heirloom which cannot ensure mastery of all events but can conjure a tailwind for most of them. Land theft and human plunder cleared the grounds for Trump’s forefathers and barred others from it. Once upon the field, these men became soldiers, statesmen, and scholars; held court in Paris; presided at Princeton; advanced into the Wilderness and then into the White House. Their individual triumphs made this exclusive party seem above America’s founding sins, and it was forgotten that the former was in fact bound to the latter, that all their victories had transpired on cleared grounds. No such elegant detachment can be attributed to Donald Trump—a president who, more than any other, has made the awful inheritance explicit.

National Geographic Magazine has opened its annual photo contest, with the deadline for submissions coming up on November 17.

National Geographic Magazine has opened its annual photo contest for 2017, with the deadline for submissions coming up on November 17. The Grand Prize Winner will receive $10,000 (USD), publication in National Geographic Magazine and a feature on National Geographic’s Instagram account. The folks at National Geographic were, once more, kind enough to let me choose among the contest entries so far for display here. The captions below were written by the individual photographers, and lightly edited for style.

What the Trump administration has been threatening is not a “preemptive strike.”

Donald Trump lies so frequently and so brazenly that it’s easy to forget that there are political untruths he did not invent. Sometimes, he builds on falsehoods that predated his election, and that enjoy currency among the very institutions that generally restrain his power.

That’s the case in the debate over North Korea. On Monday, The New York Timesdeclared that “the United States has repeatedly suggested in recent months” that it “could threaten pre-emptive military action” against North Korea. On Sunday, The Washington Post—after asking Americans whether they would “support or oppose the U.S. bombing North Korean military targets” in order “to get North Korea to give up its nuclear weapons”—announced that “Two-thirds of Americans oppose launching a preemptive military strike.” Citing the Post’s findings, The New York Times the same day reported that Americans are “deeply opposed to the kind of pre-emptive military strike” that Trump “has seemed eager to threaten.”

More comfortable online than out partying, post-Millennials are safer, physically, than adolescents have ever been. But they’re on the brink of a mental-health crisis.

One day last summer, around noon, I called Athena, a 13-year-old who lives in Houston, Texas. She answered her phone—she’s had an iPhone since she was 11—sounding as if she’d just woken up. We chatted about her favorite songs and TV shows, and I asked her what she likes to do with her friends. “We go to the mall,” she said. “Do your parents drop you off?,” I asked, recalling my own middle-school days, in the 1980s, when I’d enjoy a few parent-free hours shopping with my friends. “No—I go with my family,” she replied. “We’ll go with my mom and brothers and walk a little behind them. I just have to tell my mom where we’re going. I have to check in every hour or every 30 minutes.”

Those mall trips are infrequent—about once a month. More often, Athena and her friends spend time together on their phones, unchaperoned. Unlike the teens of my generation, who might have spent an evening tying up the family landline with gossip, they talk on Snapchat, the smartphone app that allows users to send pictures and videos that quickly disappear. They make sure to keep up their Snapstreaks, which show how many days in a row they have Snapchatted with each other. Sometimes they save screenshots of particularly ridiculous pictures of friends. “It’s good blackmail,” Athena said. (Because she’s a minor, I’m not using her real name.) She told me she’d spent most of the summer hanging out alone in her room with her phone. That’s just the way her generation is, she said. “We didn’t have a choice to know any life without iPads or iPhones. I think we like our phones more than we like actual people.”

The president has sided with Luther Strange in the primary matchup, a candidate who has lagged behind his challenger Roy Moore in polling.

Alabama Republicans head to the polls on Tuesday in a special election primary. The race pits former state attorney general Luther Strange against former judge Roy Moore in a fight for the Republican nomination in the race for the Senate seat vacated by Attorney General Jeff Sessions. Polls close at 8 p.m. EST.

Strange has President Trump’s endorsement and has benefited from millions of dollars in spending from political groups aligned with Senate Majority Leader Mitch McConnell. Even so, Strange, who was temporarily appointed to the Senate seat in February by then-Alabama Governor Robert Bentley, has trailed in the polls, lagging behind his challenger. Moore is a conservative firebrand who was removed from the Alabama Supreme Court in 2003 after refusing to move a monument to the Ten Commandments from the state judicial building.